Investing in Mexico

So how do you invest in Mexico's economic boom? 

A good place to start is with the stocks of companies that will prosper as Mexicans become wealthier and live better. This is a familiar theme from developing economies such as Brazil and China, and it applies to Mexico as well.

In this category I'd put Industrias Bachoco (IBA) and Gruma (GMK). (These two American depositary receipts are very thinly traded. They trade on Mexico's stock exchange as BACHOCOB.MM and GRUMAB.MM).

Industrias Bachoco is Mexico's leading producer of chicken. As incomes go up, so does consumption of protein. Chicken is a key part of Mexican cuisine, and Industrias Bachoco has about 30% of the Mexican poultry market. The company expanded into the U.S. market in 2011 with its acquisition of OK Industries. The shares are up 58% in the past 12 months.

Gruma is Mexico's -- and indeed the world's -- leading corn flour manufacturer and tortilla producer, and it distributes its corn and wheat flours and finished products such as tortillas and flatbreads in 105 countries. About two-thirds of sales come from outside Mexico. In December, the company bought back a 23% stake from Archer-Daniels Midland (ADM). In the fourth quarter, the company's results took a big hit from labor and production troubles in Venezuela and from foreign exchange losses on that country's currency. The stock is up 50.2% in the past 12 months.

Shares of Mexico's homebuilders have been pounded on a shift in government construction subsidies from single homes to apartments. Cash flow has collapsed at these companies, calling into doubt their ability to meet big debt loads they took on to acquire land. But the shares rallied strongly Wednesday on news that the government will cover as much as 30% of bank losses on loans to the homebuilders. That relieved fears that the companies wouldn't be able to secure needed bank financing. Desarrolladora Homex (HXM) is the biggest in the sector with the best liquidity in the New York markets. (Rounding out the top three are Corp GEO, which trades as GEOB.MM in Mexico City, and Urbi Desarrallos Urbanos, which trades as URBI.MM in Mexico City.)

Cemex (CX) is a less go-for-broke way to invest in housing (and infrastructure and commercial construction) than the shares of homebuilders. Not that Cemex hasn't had its own challenges. The cement-maker loaded up with debt to finance acquisitions in the United States just in time for the collapse of the U.S. housing sector. That resulted in 13 straight quarterly losses that threatened to send the company into default. In the past year the stock has climbed as the company has restructured its debt -- extending maturities on $6.7 billion in debt in 2012, for example. Now the goals are to return to profitability, to regain the company's investment grade credit rating and to grow EBITDA (earnings before interest, taxes, depreciation and amortization) by 80%, much of it thanks to a recovery in the U.S. housing market, by 2016. The United States is the company's biggest foreign market.

And last on my list is another Mexican company big on expanding exports to the United States: Grupo Televisa (TV). Grupo Televisa has an amazing 70% share of the prime-time audience on Mexican TV, thanks to licenses that give it operation of four of the 10 TV stations in Mexico City. A large number of repeater stations retransmit this programming throughout the rest of the country. Televisa also produces Spanish language programming for audiences in Mexico and, increasingly, the United States. In 2010, it bought a 5% stake in Univision with an option to acquire an additional 35% of the company that distributes Televisa's programming in the United States. The company has used the cash flow from its TV stations to become a major player -- with about of half of Mexico's subscribers -- in the country's pay TV and cable market. Televisa owns a 59% stake in Sky Television, 100% of Cablemas, and parts of Cablevision and TVI.

These five stocks should be enough to get you started on adding Mexico to your portfolio.

Around the turn of the past century, Porfirio Diaz, president of Mexico almost continuously from 1877 to 1911, is alleged to have said, "Poor Mexico -- so far from God and so close to the United States."

Right now, though, with Mexico's economy powering ahead because of the country's proximity to the U.S. market, Diaz's lament seems very out date.

Updates to Jubak's Picks

These recent blog posts contain updates to the stocks in Jubak's market-beating portfolios:

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At the time of publication, Jim Jubak did not own or control shares of any company mentioned in this column in his personal portfolio. When in 2010 he started the mutual fund he manages, the Jubak Global Equity Fund(JUBAX), he liquidated all his individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this column. The fund owned shares of Grupo Televisa, Industrias Bachoco and Urbi Desarrallos Urbanos as of the end of December.Find a full list of the stocks in the fund as of the end of December on the Jubak Global Equity Fund website.

Jim Jubak's column has run on MSN Money since 1997. He is the author of the book "The Jubak Picks," based on his market-beating Jubak's Picks portfolio; the writer of the Jubak's Picks blog; and the senior markets editor at Get a free 60-day trial subscription to JAM, his premium investment letter, by using this code: MSN60 when you register at the Jubak Asset Management website.

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